Power Plant Regulation and the Rhetoric of Reliability

March 15, 2013

The coal-fired power plant industry has always fought air-emissions standards enacted pursuant to the Clean Air Act (CAA). But the industry has increasingly raised the specter of reliability problems, arguing that EPA’s recent “tsunami” of regulations will cause a “train wreck,” forcing companies to retire aging plants so rapidly that lost capacity will outpace the development of new sources. The result, theymaintain, will be such an unmanageable strain on the regional grids that they will have to impose brownouts and blackouts as a consequence.

The overheated rhetoric of reliability threatens to overwhelm and run aground meaningful debate about environmental regulation, climate change, and the appropriate mix of fuels for generating electricity. There is no doubt that reliability is a critical concern—but it is being misused to obscure the fact that many updates to our power supply are necessary, achievable, and taking place already as a result of both environmental regulation and market forces.

The Rhetoric

Facing proposed new regulations under the CAA, the industry attempted to play the reliability trump card in several rulemaking proceedings, including EPA’s “Cross-State” rule governing interstate transport of power plant pollutants, EPA’s “Utility MACT” rule limiting emissions of mercury and other hazardous air pollutants from power plants, and EPA’s greenhouse gas rules requiring power plants to install the “best available control technology” (BACT) in new power plants and modifications of existing power plants. Coal interests have even used reliability concerns in their efforts to persuade Congress and the Bush and Obama Administrations to force EPA to terminate enforcement actions against power plants that unlawfully modified their facilities without undergoing “new source review” and installing BACT.

These efforts were not confined to the agency; they also pushed Congress to pressure EPA to back off on reliability grounds. At congressional hearings in late 2011, for example, Republican members of Congress raked EPA Administrator Lisa Jackson over the coals for promulgating the Cross-State Rule. Representative Michael Burgess (R-Texas) warned that the regulation was “going to have a significant impact on public health" because people "really can die in large numbers" if air conditioning is unavailable in the summer months in southern states. It is true that deaths increase when air conditioning is unavailable—and that is a reason to take reliability seriously. Of course, regulations protecting the public from sulfur dioxide, particulate matter, nitrogen oxides and mercury can save thousands of lives and prevent millions of illnesses in the future as well. And therein lies the problem: it is impossible to know from this rhetoric how likely reliability problems actually are. But without that understanding, we miss the opportunity to engage in informed policy discussions.

So what do we know about reliability?

Coal-Fired Power and the Grid

Because coal-fired power accounts for about 40% of the nation’s electricity supply, industry representatives argue, massive retirements of aging plants that cannot comply with air emissions standards will threaten reliability. To understand how this could happen, consider the following. Coal-fired power contributes significantly to “base load”—that portion of electrical power that runs twenty-four hours a day and is relatively cheap compared to power generated to meet peak demand.

Alternating-current electricity must be kept in balance across the grid; that is, the electricity being fed into the grid must be equal to that being removed by consumers. Otherwise, system failures like brownouts and blackouts may result. A combination of methods is used to guard against such failures, including maintaining reserves—power generation that is normally unused but available in the event it is needed. Many of the oldest coal-fired plants are too inefficient and expensive to provide base load, but they are kept on reserve to guard against shortages.

The concern about reliability is that these reserve plants—and perhaps some base load units—will need to be retired so quickly under the new regulations that construction of replacement generating units will not be able to keep pace. But consider also these facts:

The industry’s reliability argument is centered on studies conducted prior to EPA’s issuance of proposed rules; the actual rules are less stringent than those considered in the pre-rule studies.

Gina McCarthy, President Obama's nominee to be the next EPA Administrator, has pointedly observed that EPA has never shut down a power plant if the loss of its production would jeopardize reliability.

Market forces are already playing an important role in prompting switches from coal to natural gas for electricity generation.The industry has shown that it can add capacity quickly. Between 2000-03, for example, over 200 gigawatts of new capacity was added, more than even the industry suggests will be needed in the regulatory compliance timeframe (see Congressional Research Service at page 30, figure 6).

Taking all these facts into consideration, CRS has concluded that it is unlikely that CAA regulations will cause national reliability problems (see also this CRS report for more on CAA rules). There is a slight chance of reliability issues in certain regional markets, but the regulatory landscape provides other ways to address those concerns.

The Regulatory Landscape

As an initial matter, there are many avenues for redress with respect to the regulations at issue. First, proposed regulations are often modified in response to industry concerns. Second, even after a regulation is finalized, the agency has many opportunities to soften the blow. In the case of the Cross-State rule, for example, EPA reacted to complaints by the State of Texas that the rule dealt too harshly with the state’s utility companies by granting Texas more allowances to distribute in implementing the cap-and-trade program that the rule put into effect.

Third, President Obama has directed EPA to provide ample time to the regulated industry to come into compliance with its standards where it has discretion to do so. With respect to the Utility MACT rule for example, EPA has stated its intent to use its enforcement discretion to provide additional time to utilities where premature retirement of coal-fired power would lead to reliability problems.

Fourth, a reviewing court may set aside the rule on any one of a number of grounds, thereby sending the agency back to the drawing board before the rule ever goes into effect. That is exactly what happened with the Cross-State rule. Before the final rule became effective, the D.C. Circuit court of appeals issued a stay preventing EPA from implementing it until after the judicial proceedings had run their course. Nearly two years after that, the same court set aside the rule because it disagreed with EPA’s interpretation of the Clean Air Act. The companies that complained so bitterly about the threat that the rule posed to grid reliability never had to comply with its provisions.

Fifth, if reliability truly becomes a concern, there are a number of backstop measures available to the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC). DOE can order power plants to operate in the event of a reliability emergency; FERC has a similar power if it is petitioned to enter such an order by a Public Utility Commission. Both agencies have exercised this power in recent years, and there is no reason to think they would fail to do so again in the face of a serious reliability concern.

Finally, history amply demonstrates that when an industry has its back to the wall, it can come up with innovative solutions that ensure compliance with even stringent regulations. In the case of power plants, one available solution to bridge the gap between coal and more sustainable fuels is to replace ancient electricity generating units with new units that burn natural gas, a fuel that is no longer in short supply. Engineers are rapidly developing more efficient natural gas burning units that recycle off-gases to get more kilowatt-hours per cubic foot of gas.

From its inception, the Clean Air Act has been a “technology-forcing” statute. If the agency is too sensitive to unsupported claims that its regulations threaten grid reliability, the regulations that it promulgates will tend to ratify the status quo, rather than provide the incentive that a recalcitrant industry needs to adapt to the demands of our shared environment.

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Emily Hammond is a Professor of Law at the George Washington University Law School.